Stocks surge; S&P 500 turns positive for 2009

Published 7:00 pm, Sunday, May 3, 2009

NEW YORK (AP) — Another big rally on Wall Street has erased the losses suffered by the Standard & Poor’s 500 index this year.

The S&P 500, the market barometer preferred by professional investors, is now up 0.4 percent for 2009. Many investments like mutual funds either mirror or are measured against the index.

Gains in housing, financial and materials stocks pushed the S&P up 3.4 percent Monday. The Dow Jones industrial average jumped 214 points but is still down 4 percent for the year.

Two new economic nuggets bolstered the case that the economy’s slide could be slowing and helped extend a two-month rally. Pending U.S. home sales increased more than expected to post their second straight monthly gain, while construction spending rose unexpectedly in March after five straight decreases.

Jerry Webman, chief economist at Oppenheimer Funds Inc., said stocks are rallying because investors aren’t fearful as they were months ago that the economy is headed for the abyss. Much of the economic and earnings news since the stock market hit 12-year-lows in early March has been at least somewhat upbeat.

“There’s been this fear that every six months another shoe drops and maybe there isn’t a shoe in mid-air right now,” he said.

According to preliminary calculations, the S&P 500 index rose 29.72, or 3.4 percent, to 907.24, its first close above 900 since Jan. 8. The index had previously only been higher in the first five trading days of the year.

The Nasdaq composite index rose 44.36, or 2.6 percent, to 1,753.56. It is up 11.8 percent in 2009.

The rally came after the National Association of Realtors said its index of pending sales for previously occupied homes rose 3.2 percent to 84.6. That was well ahead of the 82.1 economists had been expecting and the second month of gains after the index hit a record low in January.

Adviser: Unlikely Chrysler will repay gov’t loans

NEW YORK - One of the top financial advisers overseeing Chrysler LLC’s restructuring testified in bankruptcy court Monday that there is a “low likelihood” that the automaker will be able pay back its billions of dollars in government loans.

But Robert Manzo, an executive director with the restructuring group Capstone Advisory Group LLC, said he doesn’t view the government financing as “free money.”

“They’re offering financing with a low likelihood of being repaid,” he said.

Under a plan announced Thursday for Chrysler to file for Chapter 11 bankruptcy protection and partner with Italian automaker Fiat Group SpA, the government agreed to provide $8 billion in financing on top of the $4 billion Chrysler has received since January.

Earlier in Monday’s hearing, Judge Arthur Gonzalez postponed his decision on whether Chrysler can start the process of selling its most valuable assets to a new entity partnered with Fiat.

Gonzalez delayed the issue until Tuesday afternoon after attorneys for a dissident group of Chrysler’s lenders objected to taking up the issue because it needed more time to review the proposed deal. Chrysler lawyers did not file its motion until late Sunday.

A group of Chrysler’s lenders have refused to wipe out most of Chrysler’s debt and go along with the government’s restructuring plan. A lawyer for some of the creditors, Tom Lauria, said they have not had time to review Chrysler’s 300-page filing.

Lauria also objected to a Chrysler motion to allow the automaker to pay taxes, and he indicated that he also would object to the payment of other costs and expenses. He said if the sale to Fiat fails to go through, any money spent would be taking away from what left for the lenders later.

“We’re opposing at this point everything that the debtor is doing that is premised on the assumption that value that would be preserved through the sale,” he said. “Because if we didn’t have the sale, none of these actions make sense.

“What we’re doing is spending money today that we’re going to have to fight to get back later.”

Obama targets US firms’ overseas tax loopholes

WASHINGTON - President Barack Obama promised sternly on Monday to crack down on companies “that ship jobs overseas” and duck U.S. taxes with offshore havens.

It won’t be easy. Democrats have been fighting - and losing - this battle since John F. Kennedy made a similar proposal in 1961.

Obama’s proposal to close tax loopholes was a reliable applause line during the presidential campaign, but it got a lukewarm response Monday from Capitol Hill. Sen. Max Baucus of Montana, the Democratic chairman of the Senate Finance Committee, said the plan needed further study, even though similar ideas have been around for years.

The president’s plan would limit the ability of U.S. companies to defer paying U.S. taxes on overseas profits. At the same time, Obama would step up efforts to go after evaders who abuse offshore tax shelters.

Obama said his plan would raise $210 billion over the next 10 years, though no tax increases would go into effect until 2011. That’s an average of $21 billion a year, less than a 2 percent nick in a federal budget that is projected to generate a deficit of $1.2 trillion in 2010.

Lost revenue isn’t the only problem, Obama says. He contends the current system gives companies an incentive to invest overseas rather than creating jobs in the U.S.

“It’s a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, N.Y.,” Obama said Monday.

The business community argues the deferral system helps them compete against foreign companies that pay taxes only in the countries where they generate profits.

The bottom line?

“Nobody should miss the fact that this is about revenue,” said Raymond Wiacek, head of the tax practice at the law firm Jones Day. “These companies have the money, and the U.S. government needs the money.”

Obama also proposed a package of disclosure and enforcement measures designed to make it harder for financial institutions to help wealthy individuals evade taxes in overseas accounts. Obama said the government is hiring nearly 800 new IRS agents to enforce the tax code.

“I want to see our companies remain the most competitive in the world,” Obama said at a White House announcement. “But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens.”

Obama’s plan would impose billions of dollars in new taxes on many of the nation’s largest corporations, including Google, General Electric, Hewlett-Packard, Intel and Johnson & Johnson, tax experts said. But it falls well short of the broad overhaul of the tax system that will probably have to wait until at least next year - after Congress deals with health care and energy.

In exchange for the increased taxes some companies would have to pay, Obama agreed to make permanent a research tax credit that would provide firms about $75 billion in breaks over the next 10 years. The credit currently is to expire at the end of the year.

Obama has widespread support in Congress to crack down on tax evaders who illegally hide assets in tax havens. But he faces stiff opposition - even within his own party - to increasing taxes on the legal transactions of U.S. multinational companies.

A coalition of business groups has already stepped up lobbying efforts to kill attempts to increase taxes on overseas profits, saying it would make American companies less competitive.

“We’re talking about American jobs at American companies and their ability to compete overseas,” said John J. Castellani, president of the Business Roundtable.

At issue is the way the U.S. taxes the overseas profits of American companies. Under current law, American corporations with subsidiaries in foreign countries can defer paying U.S. taxes on the profits of those subsidiaries until the money is transferred back to this country.

If companies leave the money overseas, where corporate tax rates in most countries are lower than in the U.S., they can avoid American taxes on those profits indefinitely. If the money is brought to the U.S., corporations can subtract foreign taxes already paid.

The U.S. has a top corporate income tax rate of 35 percent, which is among the highest in the developed world. However, most corporate income is taxed at much lower rates because of deductions and credits.

Rep. Charles Rangel, chairman of the tax-writing House Ways and Means Committee, proposed a similar measure to limit the deductions of U.S. multinationals in 2007. But Rangel, a Democrat from New York, tied his proposal to lowering the overall corporate tax rate.

On Monday, he welcomed Obama’s plan.

“For too long, our tax laws have rewarded companies that invest and keep their money overseas and turned a blind eye to the use of tax havens by the wealthy,” Rangel said.

Iraq insists on US leaving cities by June 30

BAGHDAD - Iraq’s government Monday ruled out allowing U.S. combat troops to remain in Iraqi cities after the June 30 deadline for their withdrawal, despite concern that Iraqi forces cannot cope with the security challenge following a resurgence of bombings in recent weeks.

Asking U.S. forces to stay in the cities, including volatile Mosul in the north, would be embarrassing for Iraq’s prime minister, who has staked his political future on claims that the country has turned the corner in the war against Sunni and Shiite extremists.

The departure of heavily armed combat troops from bases inside the cities is important psychologically to many Iraqis, who are eager to regain control of their country after six years of war and U.S. military occupation.

U.S. officials played down the Iraqi decision, with Pentagon spokesman Bryan Whitman saying it’s up to the Iraqi government to request an extension of the U.S. presence in the cities and “we intend to fully abide by” terms of the security agreement.

The chairman of the Joint Chiefs of Staff, Adm. Mike Mullen, told reporters Monday that violence had not risen to a level that would force a change in the withdrawal schedule.

Last month, however, the top U.S. commander in Iraq, Gen. Raymond Odierno, said he was worried that Iraqi forces won’t be ready to assume full responsibility for Mosul by the end of June.

Privately, some U.S. officers fear the Iraqis may lose control of Mosul within a few months after American forces pull out of Iraq’s third largest city, where al-Qaida and other Sunni militants remain active.

The U.S.-Iraq security agreement that took effect this year calls for American combat troops to leave urban areas by the end of June, with all U.S. forces out of the country by the end of 2011.

But a series of high-profile bombings has raised questions whether Iraqi forces can assume more security responsibilities, especially in Mosul.

Nationwide, at least 451 people were killed in political violence last month, compared with 335 in March, 288 in February and 242 in January, according to an Associated Press tally.

Even in Baghdad, where violence is down sharply from levels of two years ago, attacks are continuing.

On Monday, two car bombs exploded almost simultaneously near the Oil Ministry and a police academy, killing at least three people and wounding eight.

The security agreement allows Prime Minister Nouri al-Maliki to request an extension of the deadlines if he feels Iraqi forces need help. But the prime minister’s spokesman said the withdrawal deadlines, including the June 30 date, were “non-extendable.”

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“These dates cannot be extended and this is consistent with the transfer and handover of responsibility to Iraqi security forces,” spokesman Ali al-Dabbagh said in a statement.